liabilities

Examples of liabilities in the following topics:

• Reporting Current Liabilities

  • Current liabilities are reported first in the liability section of the balance sheet because they have first claim on company assets.
  • Liabilities are disclosed in a separate section that distinguishes between short-term and long-term liabilities.
  • In addition to current liabilities, long-term liabilities are listed in a separate section after current debt.
  • However, for all long-term liabilities, any amounts due in the current fiscal year are reported under the current liability section.
  • Current liabilities is the first section reported under liabilities on the balance sheet.

• Reporting Long-Term Liabilities

  • This is an example of a long-term liability.
  • "Notes Payable" and "Bonds Payable" are also examples of long-term liabilities, and they often introduce an interesting distinction between current liabilities and long-term liabilities presented on a classified balance sheet.
  • Continuing one year forward, Company X would report a current liability of 20,000 and a long-term liability of 60,000 on its balance sheet as of 12/31/2014.
  • What this example presents is the distinction between current liabilities and long-term liabilities.
  • Despite a Note Payable, Bonds Payable, etc., starting out as a long-term liability, the portion of that debt that is due within a year has to be backed out of the long-term liability and reported as a current liability.

• Defining Current Liabilities

  • Liabilities are reported on the balance sheet, along with assets and owner's equity.
  • A liability is defined by one of the following characteristics:
  • A current liability can be defined in one of two ways: (1) all liabilities of the business that are to be settled in cash within a firm's fiscal year or operating cycle, whichever period is longer or (2) all liabilities of the business that are to be settled by current assets or by the creation of new current liabilities.
  • A current liability, such as a credit purchase, can be documented with an invoice.
  • Current liabilities are debt owed and payable no later than the current accounting period.

• Current Maturities of Long-Term Debt

  • The portion of long-term liabilities that must be paid in the coming 12-month period are classified as current liabilities.
  • Long-term liabilities are liabilities with a due date that extends over one year, such as a notes payable that matures in 2 years.
  • In accounting, the long-term liabilities are shown on the right side of the balance sheet, along with the rest of the liability section, and their sources of funds are generally tied to capital assets.
  • The portion of long-term liabilities that must be paid in the coming 12-month period are classified as current liabilities.
  • The portion of the liability considered "current" is moved from the long-term liabilities section to the current liabilities section.

• Classifying Liabilities

  • Liabilities are classified in different types.
  • The two main categories of these are current liabilities and long-term liabilities.
  • Current liabilities are often loosely defined as liabilities that must be paid within a single calender year.
  • A better definition, however, is that current liabilities are liabilities that will be settled either by current assets or by the creation of other current liabilities.
  • Contingent liabilities can be current or long-term.

• Defining Liabilities

  • A liability is defined as an obligation of an entity arising from past transactions/events and settled through the transfer of assets.
  • A liability is defined by the following characteristics:
  • Types of liabilities found on a company's balance sheet include: current liabilities like notes payable, accounts payable, interest payable, and salaries payable.
  • Liabilities can also include deferred revenue accounts for monies received that may not be earned until a future accounting period.
  • Long-term liabilities have maturity dates that extend past one year, such as bonds payable and pension obligations.

• Types of Partnerships

  • For the purpose of this discussion, the most important types of partnerships to consider are general partnerships, limited partnerships, joint liability partnerships, several liability partnerships, and limited liability partnerships.
  • As opposed to a several liability concept, in which liability may be distributed based on certain proportionate responsibility, joint liability partnerships are equal across the board.
  • Several liability is the converse to joint liability, in which the involved parties will settle liability disputes based on respective obligations.
  • But how much liability does each party deserve?
  • Finally, there are limited liability partnerships (LLPs).

• Liabilities

  • A liability is defined by the following characteristics:
  • Liabilities are reported on a balance sheet and are usually divided into two categories:
  • Current liabilities: these liabilities are reasonably expected to be liquidated within a year.
  • Long-term liabilities: these liabilities are reasonably expected not to be liquidated within a year.
  • Liabilities of the United States as a fraction of GDP (1960-2009)

• Components of the Balance Sheet

  • The balance sheet relationship is expressed as; Assets = Liabilities + Equity.
  • The balance sheet contains statements of assets, liabilities, and shareholders' equity.
  • Liabilities are the debts owed by a business to others–creditors, suppliers, tax authorities, employees, etc.
  • A business incurs many of its liabilities by purchasing items on credit to fund the business operations.
  • Differentiate between the three balance sheet accounts of asset, liability and shareholder's equity

• Analyzing Long-Term Liabilities

  • Analyzing long-term liabilities combines debt ratio analysis, credit analysis and market analysis to assess a company's financial strength.
  • Long-term liabilities are obligations that are due at least one year into the future, and include debt instruments such as bonds and mortgages.
  • Analyzing long-term liabilities is done for assessing the likelihood the long-term liability's terms will be met by the borrower.
  • After analyzing long-term liabilities, an analyst should have a reasonable basis for a determining a company's financial strength.
  • Typically, company's present liabilities with the earliest due dates first.